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Electronic Arts has taken the ax to hundreds of employees at locations in Burnaby, Orlando and San Francisco today, according to chatter from former EA employees, issuing layoffs the same day it confirms a buyout of social gaming publisher Playfish.

Included in this are the Tiburon studies which produce the EA Sports products. Odd since I always thought they were rock solid.

As a related aside, I was informed last week that WAR went on "Maintenance Mode" recently, which is never a good sign. It means that there is no new content generated, only fixes. Still not sure if they were hit.

I'm in the financial community and can comment on a lot of what is happening here.

Basically the console packaged goods business is in secular decline. I'm sorry console owners but you are no longer the focus for game publishers going forward.

The business model of developing games for consoles and selling them at retail in the form of shiny discs is slowly dying. Developing a game for 3 years, pumping in tens of millions, and then hoping it sells in a one month window at retail is a failed business model. In the early part of this console cycle the underlying problems were masked by the initial high growth as the console installed base got built out. The Wii in particular was thought to be a panacea to bring in new gamers. This was a false prophet. Yet in parallel, there was the continued and inexorable march of the online PC and mobile gaming markets, particularly in Asia where companies were putting up some incredible growth and profitability numbers.

It is interesting to note that even in the early boom years of this console cycle (2006-2008) nearly every console publisher has struggled. EA has lost millions, THQ nearly went bust (saved temporarily by UFC), Midway and Eidos both went bust, Take Two was nearly was acquired, and only Activision seemingly did ok on the back of Guitar Hero. Well as we finish 2009, nearly everything has fallen apart, even Activision's music biz. Yes, any given title will sell well (i.e. Modern Warfare 2), but in aggregate the total packaged goods console software market will be down nearly -10% this year and nearly no one is making a dime. Take a look at Take Two and THQ. Both will do close to $1B in revenue this year....Guess what they will earn in profits? ZERO. Not many companies in other industries that do at least a $1B in revenue generate zero profits. EA is targeting a non-gaap operating profit margin of 7-10% on a $4.3B revenue base. Not very impressive.....Tencent in China will do $1.8B in revenue and has a 48% operating profit margin all on the back of selling virtual game items to its 400M Internet users, and all of it is online and "recurring" in nature....that's impressive.

This is why the traditional publishers are so desperate to move away from packaged goods and into the ONLINE world. Playfish is estimated to do around $100M+ next year and has 60M active users. EA is paying $300-400M for the company or 3-4x next year's sales. Playfish is profitable. Zynga is even bigger and even more profitable. The companies in China are hugely profitable. The average Chinese online gaming company (Tencent, Netease, Shanda, Perfect World, Changyou, Giant) have an operating profit margin around 50% and have "recurring" revenue models. In fact the combined market cap of these 6 Chinese online game companies have a total value of $55B while combined market cap of Activision, EA, THQ, TakeTwo, and Ubisoft totals $24B. China online game companies alone are now worth 2X their Western competitors. Now if you throw in the potential value of Playfish and Zynga and other social gaming companies, its pretty obvious to the traditional game publishers where they need to go.....they need to move online, get a source of recurring revenue, and get their margins up. If they don't do this, they will be acquired or go away.

The layoffs at EA, while unfortunate are necessary if they want to survive. They have to shift resources from money losing game projects (they said they are killing a dozen games) and into more profitable games, specifically those that are online. EA is betting on Playfish, the upcoming Star Wars MMO, lots of DLC, and yet to be announced a slew of microtransaction games for both the US and Asian markets. The problem with EA and the other console publishers is they totally missed the boat on MMO's and now social games with virtual items. In an act of admission of failure, EA decided to buy into Playfish. They couldn't afford to buy the #1 player Zynga.

One side note, Activision did see some of the handwriting on the wall and pulled off the merger with Vivendi to get Blizzard. However, if they didn't have Blizzard they would be in serious trouble even with Call of Duty. Guitar Hero and the music genre is structurally challenged and bascially all their other games are failures.

The next couple of years will bring even more emphasis on these publishers in minimizing their exposure to packaged goods console games. Expect to see fewer releases especially for single player non-connected games on the console. Also expect to see a lot more of microtransactions and free-to-play games.

Wear the Filthy Skimmer badge with honor. For we have all, at one time or another, been filthy skimmers. And it is our brotherly duty to remind each other, that although the path of the skimmer is quick, it is also treacherous.

The business model of developing games for consoles and selling them at retail in the form of shiny discs is slowly dying. Developing a game for 3 years, pumping in tens of millions, and then hoping it sells in a one month window at retail is a failed business model

It's more about this...and less about the exact nature of the "game". There is no reason for the games that are being produced from not getting monetized properly. Exactly what we see IW going through with MW2 is just the beginning.. what we see with Blizzard looking at Battle.Net with an eye more towards monetization (and with D3 and SC2).

It will probably just involve more gnashing of the teeth from us old timers as we get pushed into this new business model based around extended product lifespans way beyond that first month of sales.. where big name titles become a source of recurring revenue over a lifespan of 12-18 months (DLC, Microtranscations, Virtual Goods etc..)

At least I hope so.. lol I'm taking one company down this direction so I'm banking on it.

I'd be shocked if we all don't blink a year from now and realized we spent $150 on Dragon Age alone.

Aint nothing new about the world order..it's been playing since the day they put George Washington on a quarterDelivering Truth while the 10% deliver lies.

It's more about this...and less about the exact nature of the "game". There is no reason for the games that are being produced from not getting monetized properly. Exactly what we see IW going through with MW2 is just the beginning.. what we see with Blizzard looking at Battle.Net with an eye more towards monetization (and with D3 and SC2).

I'd be shocked if we all don't blink a year from now and realized we spent $150 on Dragon Age alone.

Totally agree with this. What Blizzard is doing with Battle.net and what IW will probably doing with IW.net is basically the same. Both want to (1) provide server authentication to break piracy, (2) build a community, (3) establish an online monetization platform to enable microtransactions, etc. It's not a coincidence that IW is calling their platform "IW.net" which could become a lot like Battle.net. They both see what Valve has done with Steam and what Xbox Live have achieved. Starcraft2, Diablo3, and future Call of Duty games will be online authenticated and monetized via many alternative methods beyond the initial box sale. DragonAge will be similar and I agree with you, probably a lot of us will be buying those DLC.

There are however many many games that won't/can't capitalize on this. Take a look at all the shovel ware being made for the Wii. Barely any of those users are even connected to the Internet so DLC is not a viable option. Making Wii games is basically a lost cause. There are also a ton of single player games on the consoles that are basically ship once and forget. These type of middle of the road games will go the way of the dinosaur. They are just not financially viable.

There are however many many games that won't/can't capitalize on this. Take a look at all the shovel ware being made for the Wii. Barely any of those users are even connected to the Internet so DLC is not a viable option. Making Wii games is basically a lost cause. There are also a ton of single player games on the consoles that are basically ship once and forget. These type of middle of the road games will go the way of the dinosaur. They are just not financially viable.

I'm not 100% sold.

I think the middle of the road single player games will still have people willing to pay $1-5 for random DLC. People are weird and hard to predict. I don't expect any of them to become financial behemoths, but they can still supplement their original purchase with some cheaper to produce DLC.

As for the Wii, I honestly have no idea. I don't own a Wii, but I can picture parents, aunts, grandparents, etc buying all sorts of crappy shovelware for Christmases. They don't know "insert good wii game here" from "insert wii game with lots of zs in place of ss"

Fletcher wrote:

Wear the Filthy Skimmer badge with honor. For we have all, at one time or another, been filthy skimmers. And it is our brotherly duty to remind each other, that although the path of the skimmer is quick, it is also treacherous.

I'm cautious of anyone saying "all games need to be like this", but I can see the reasoning. It's clear that EA loves the sims, and wants to put some of it's DNA into other games. It has been coming for years, games with 2-3 years of development, tens of millions in budget and a month to hit or miss. As said above, if EA could get you to buy 3 games worth of DA plus addons instead of 3 different games they gain. With one game plus addons I imagine the development budget is much smaller than 3 separate. (sidenote: I wonder when the next medieval fantasy themed game from EA will be, I would bet it'll be a while so it's not competing)

My personal wish for one thing it would be for no type of game to be in the situation "sorry we don't make that type of game any more", but for developers and publishers to have a good look at what the project requires and what can be expected from it and treat it appropriately. Less risk, but the project needs a smaller income to be a success. My perspective sees the majority of publishers tunnel vision on the 'standard' price point for a certain platform.

The industry does seem to be pulling in two directions:
-One way putting lots of chips on black, a big broad bet. 'Triple-A' and beyond, lots of money involved. Taking MW2 as an example, activision wanted to give tons of money to IW to use, and charge more for the game. This Red Queen's race is only going to become harder to continue with when the next generation of consoles, which by most estimates is 1-2 game developments cycles away.
-The other putting smaller bets on a number. Small targeted developments

Another thought is whether the platforms are really set up to handle a range of 'sizes' of game. The PC is currently best suited, if you can run a server to offer downloads and accept payments you can get your game out there. The consoles have a barrier to entry, as you have to go through the platform gatekeeper. I think the main barrier to success for more sizes of game is visibility to consumers, B&M stores are mostly about selling the blockbusters, and anything less than those titles you pretty much have to know about the game already to seek it out. Even on the PC there is little directing you to the wide range of games available unless you take to browsing a range of D2D stores.

As much as the game industry is still developing and comes out with surprising new ideas every so often, I think it really needs to innovate in how they actually sell their product to people. DLC is part of this, but it can't be the only card in their hand, the internet has only really affected games (across all platforms) during this console cycle. Pretty much since the start of computer games, they have been sold as packaged goods which is now showing it's limits. We all rave about steam and how it's fantastic for selling PC titles, but now I have to think what could be better than steam.

It will probably just involve more gnashing of the teeth from us old timers as we get pushed into this new business model based around extended product lifespans way beyond that first month of sales.. where big name titles become a source of recurring revenue over a lifespan of 12-18 months (DLC, Microtranscations, Virtual Goods etc..)

At least I hope so.. lol I'm taking one company down this direction so I'm banking on it.

I'd be shocked if we all don't blink a year from now and realized we spent $150 on Dragon Age alone.

That definitely seems to be the way things are going. DLC for COD:WaW made them another ~$70 million - Link, ~15% per customer.

Personally I think longer support for games through a continued revenue stream for the developer has got to be a good thing.

I really hope that Runic Games puts out some data on Torchlight in a couple of months. I find myself really attracted to a large base of quality games that are

Available digitally

Very affordable (~$20)

Created efficiently (Small team, ~11 month dev cycle)

If I could get three Torchlights for the price of one Modern Warfare 2 on a regular basis, punctuated by the occasional Dead Space, I'd be a happy gamer.

/nod

I think this is another avenue of opportunity for developers/publishers..I think Xbox Live Arcade and the rise of Steam is a great avenue for smaller developers to develop lower priced but still engaging games in shorter dev cycles with far less capital outlay.

I don't think it was much of a coincidence that Epic released a royalty based Unreal Engine.. its squarely targeted at the 7-8 person team that can crank out something in a year at a lower price point and still make a decent return.

Aint nothing new about the world order..it's been playing since the day they put George Washington on a quarterDelivering Truth while the 10% deliver lies.

Well, of course, this transfer en masse will be successful for a while, but if anything, this should scream we still need a balanced approach.

We need big blockbuster multiyear multimillion dollar epics like God of War, Halo and Dragon Age. But we also need games like Torchlight, iphone games and games like Peggle.

The games industry is very large and its thrashing about at whatever is the latest zero to hero success strategy. EA has not proven in the least that it can handle anything remotely online. I would be interesting for EA/Bioware to become Bioware/EA in the coming years.

Activision seems to be in the same boat where the only reason Blizzard doesn't envelope them is that Blizzard doesn't want to be the front man.

So you'd rather they continue to run the company the way they are running it and eventually have to lay everyone off?? It's just not working the way they are running the company now... partly management fault.. partly the changing consumer attitudes...partly the global economy.

O_o

Aint nothing new about the world order..it's been playing since the day they put George Washington on a quarterDelivering Truth while the 10% deliver lies.

np. let me know if u have any other questions. i was just trying to summarize briefly all the dynamics in the industry. i would suggest one thing everyone should do is to study Tencent in china. what they have achieved is the envy of the global gaming industry. in fact Tencent's market value is now $34B this is bigger than Activision+EA combined ($22B) and almost equivalent to Nintendo ($36B)....yeah its true Tencent is now as valuable as Nintendo.

np. let me know if u have any other questions. i was just trying to summarize briefly all the dynamics in the industry. i would suggest one thing everyone should do is to study Tencent in china. what they have achieved is the envy of the global gaming industry. in fact Tencent's market value is now $34B this is bigger than Activision+EA combined ($22B) and almost equivalent to Nintendo ($36B)....yeah its true Tencent is now as valuable as Nintendo.

I disagree. Tencent's games business (which are value adds for their mobile/msg/online portals) isn't as much as a business driver as the tools that they are added on to. I think people who expect the games industry to move in that direction are going to be in a for a big surprise when they chase money that isn't there. it's a phantom, just like iPhone App development. The market isn't moving so much to cell phones/social media (imho) but moving away from the hollywood blockbuster that will fund the rest of the year.

Agreed here on all parts.. but remember we are still very much in the "infancy/growing pains" stage. Lots of different things will be tried out.. some will work.. some will fail.. some will be flat out ridiculous but every good company in this business is taking a hard look at the realities of the world and trying to figure out what makes best sense for them going forward. Every industry changes and morphs over time.. even the Oil Industry lol.

"Staying the course" rarely is a good "strategic vision" for a company.

Aint nothing new about the world order..it's been playing since the day they put George Washington on a quarterDelivering Truth while the 10% deliver lies.

It will probably just involve more gnashing of the teeth from us old timers as we get pushed into this new business model based around extended product lifespans way beyond that first month of sales.. where big name titles become a source of recurring revenue over a lifespan of 12-18 months (DLC, Microtranscations, Virtual Goods etc..)

At least I hope so.. lol I'm taking one company down this direction so I'm banking on it.

I'd be shocked if we all don't blink a year from now and realized we spent $150 on Dragon Age alone.

That definitely seems to be the way things are going. DLC for COD:WaW made them another ~$70 million - Link, ~15% per customer.

Personally I think longer support for games through a continued revenue stream for the developer has got to be a good thing.

It depends on how it is handled. EA's Tiger Wood 10 has now released seven courses for the 360 and PS3, at a rate of $7.50 a pop. Five of those courses are among the eleven additional courses that shipped with the Wii version. So right now, to get closer to the full version of the Wii. 360 owners would be spending $97.50 for the five courses, or a whopping $112.50, and still have four fewer courses than shipped on the Wii. Considering one of these courses was available for DLC on day one, and another just 30 days later, it's safe to say that the content was held back, not actually additional content created.

But here's the rub. While I consider the game damn close to perfect, it does have some issues to work out that I hope will be fixed for TW 11. Think those courses will transfer? Worse, some of the issues are due to EA making the game rely heavily on boosts, which throws off the balance of the game. But this is done to entice players to spend yet more money, buying boosts to play the game. There are folks that have spent well over $120 on the game when it is all said and done.

If those courses carried over to the next version, as they did on the old Links games on the PC, then I would feel more comfortable spending on the courses, even though they are ridiculously over priced. I really think you should get three courses for the $7.50. But if I was adding to my library of courses for the next version, I would be more likely to buy the next version, and continue buying courses.

But you see this in the EA's free Tiger Woods Online game. They will nickle and dime that version for more than a $50 price tag of a PC game. It's a way of creating a price increase by using a backdoor. It's not evil, but it does force gamers to educate themselves about how the industry works.

Henry Standing Bear: It is a beautiful day at the Red Pony and continual soiree.

Castiel: I suggest we imbibe copious amounts of alcohol and just wait for the inevitable blast wave.

EA has announced a plan to narrow its product portfolio to provide greater focus on titles with higher margin opportunities.

This action will result in the closure of several facilities and a headcount reduction of approximately 1,500 positions, of which 1,300 are included in a restructuring plan. The majority of these actions will be completed by March 31, 2010. This plan will result in annual cost savings of at least $100 million and restructuring charges of $130 to $150 million.

"higher margin opportunities"... This language gets me so upset. It is very hard to type without profanity.

I would definitely support smaller developers with a donation, allowing them to do what they love and produce a quality gaming experience. Rather than pay $60 after development of a game the was designed under the "higher margin opportunities" banner.

Sorry in advance to anyone with a visceral response to the soap-boxy feel of my post.

Sources tell Kotaku that the team working on Command & Conquer 4: Tiberian Twilight was warned of its fate today, with almost the entire team expected to be let go after the real-time strategy game ships some time in 2010.

Also said to be affected heavily are Spore and former-Sims studio EA Maxis, social network gaming acquisition Rupture Studios, and Mercenaries and The Saboteur creators Pandemic Studios LA. Those development studios are said to be hit with substantial layoffs, according to a source, with remaining employees relocated to EA headquarters in Los Angeles and Redwood Shores.

EA has announced a plan to narrow its product portfolio to provide greater focus on titles with higher margin opportunities.

This action will result in the closure of several facilities and a headcount reduction of approximately 1,500 positions, of which 1,300 are included in a restructuring plan. The majority of these actions will be completed by March 31, 2010. This plan will result in annual cost savings of at least $100 million and restructuring charges of $130 to $150 million.

"higher margin opportunities"... This language gets me so upset. It is very hard to type without profanity.

I would definitely support smaller developers with a donation, allowing them to do what they love and produce a quality gaming experience. Rather than pay $60 after development of a game the was designed under the "higher margin opportunities" banner.

Sorry in advance to anyone with a visceral response to the soap-boxy feel of my post.

I'm just not sure what you want from a business. They are in business to make money, and higher margins can be an efficient way to do that. As I pointed out in my Tiger Woods example, we just need to understand exactly what we are paying for. But that's no different than any other product we buy.

Henry Standing Bear: It is a beautiful day at the Red Pony and continual soiree.

Castiel: I suggest we imbibe copious amounts of alcohol and just wait for the inevitable blast wave.

Frankly, I like the idea of longer-appeal games. I'd far rather have more Fallouts and GTAs, that I play on and off for a year or more (dropping a few bucks here and there on DLC), than Mirror's Edges, which I might play for a couple of weeks, then dispose of.

ClockworkHouse wrote:

You've never known true joy until you've shaken a lich stick at someone.